Hyflux to rejig adviser fee pot after WongP's exit, finds nTan fees 'fully justified'

HYFLUX said it needs to undertake a "reallocation exercise" for the pot of money set aside by Utico to pay professional advisers' fees under the proposed restructuring deal.

This exercise is meant to take into account WongPartnership's (WongP) sudden withdrawal as Hyflux's lawyers and the need to engage new legal advisers on short notice, the troubled water treatment firm's board of directors said on Wednesday in response to queries from the Securities Investors Association (Singapore) or Sias.

WongP had applied to discharge itself from representing Hyflux in January, before Clifford Chance and Cavenagh Law were appointed the firm's new lawyers.

Prior to the reallocation exercise, Hyflux initially planned to distribute the pot on a pro rata basis to about 24 professional advisers, based on the original sum of S$40 million as stated in the restructuring agreement (RA) with Utico. This would have satisfied at least 75 per cent of adviser fees, Hyflux's board said.

Utico has also promised to increase the pot to S$50 million if all advisers support the Emirati utility's rescue package. In this case, if the scheme is passed and the enlarged pot is available, Hyflux expects that all verified outstanding adviser fees will be "paid to a significant degree".

The water treatment firm added that its legal advisers have written to Utico to seek clarification on the circumstances under which Utico will make the upsized amount of S$50 million available.

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As for Sias's advisers - FTI Consulting, Akin Gump Strauss Hauer & Feld, BlackOak, PriceWaterHouseCoopers Advisory Services and Drew & Napier - they have been paid about S$2.4 million as at Wednesday.

Outstanding fees for Sias's advisers will be paid on a pro rata basis out of the pot of money from Utico.

Hyflux also confirmed that there was no S$1.5 million sum held on trust for the Sias advisers. According to Sias, WongP had spoken of such a trust during a Dec 6, 2019 stakeholders' meeting. Sources also told The Business Times in January that WongP had assured the court that there were fees being safeguarded to ensure Sias's advisers receive payment.

Meanwhile, Hyflux's board on Wednesday said it believes company adviser nTan Corporate Advisory's fees are "fully justified".

A success fee of up to S$25 million is payable to nTan, which is helmed by principal Nicky Tan, and this will also come out of the pot. Sias had earlier said that retail holders of Hyflux's preference shares and perpetual securities (PnP) were seeking a full understanding of this fee, or else they will vote against the Utico deal.

In its reply to Sias, Hyflux pointed out that nTan had advised the board in staving off a threat by the unsecured working group (UWG) to place the company under judicial management. The UWG consists of some of Hyflux's unsecured bank creditors.

"Had the company gone into judicial management, the PnP holders would almost certainly receive no returns as the proceeds from the sale of the company's assets would be inadequate to repay the senior unsecured creditors in full after paying the judicial managers' and liquidators' costs," Hyflux said.

In addition, nTan has provided "invaluable advice to the board in navigating the difficult restructuring process and dealing with the myriad of complex conflicting issues and challenges" faced by Hyflux, the board of directors wrote.

nTan also played a "pivotal" role in advising the board to secure and navigate the negotiations with Utico before the RA was inked, it added.

The terms of engaging nTan were negotiated and agreed upon on an arm's length basis, the board said.

Since nTan's appointment, the debt moratorium has been extended multiple times, the RA with Utico was inked and Aqua Munda has offered to purchase certain debts of the Hyflux group.

"These developments have given the PnP holders the opportunity to achieve a better return than the almost certainty of no return if the company had gone into judicial management," Hyflux said.

Sias previously said that the PnP holders are doubtful of Utico's ability to meet its financial obligations under the proposed scheme. In response, Hyflux has instructed its lawyers to reach out to Utico's legal advisers, White & Case, to obtain further financial information on the Utico entities.

"The PnP holders may also wish to raise their concerns, including those relating to Utico's ability to meet future financial obligations, with their advisers," Hyflux added.

The water treatment firm said it "firmly believes" it has done its best to obtain the best possible deal for PnP holders given the circumstances. The terms offered to the PnP holders were ultimately determined by Utico, following commercial negotiations conducted on an arm's length basis.